DraftKings’ price target was slashed by Morgan Stanley — down to $36 from $39 — ahead of their second-quarter results. The bank anticipates DraftKings’ EBITDA for the quarter to be around $150 million, falling short of the consensus estimate of $175 million. This adjustment comes despite an expanded footprint in the prediction markets.
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Morgan Stanley’s Revised Expectations
In its latest analysis published on July 22, Morgan Stanley assessed eight gaming stocks with varied expectations. The report projects US regional casinos to excel, contrasting with challenges facing Macau operators and online betting firms. Notably, Morgan Stanley maintained its overweight rating on DraftKings but tightened its full-year EBITDA guidance to between $700 million and $800 million, down from an earlier range of $700 million to $900 million. Back in May, Morgan Stanley had already lowered DraftKings’ price target slightly to $39 from $40, referencing major investment in the prediction markets as a potential drag on short-term profitability. Higher marketing spending — expected to reach $100 million in Q2 and $125 million in Q3 — is cited as a key factor behind this revision.
Increased Investment and Long-Term Outlook
The financial giant has lowered its long-term estimates further, predicting DraftKings will face EBITDA losses of about $290 million in 2026 and $40 million in 2027, before rebounding to a profit of $125 million by 2028. Their analysis now includes more broad modeling of prediction-market opportunities, factoring in market-making activities and assorted trades. Despite the predictions hinting at increased expenses, Morgan Stanley has actually bumped up revenue estimates, expecting $6.94 billion by 2026 and a leap to $8.03 billion by 2027. This shows confidence in DraftKings’ growth trajectory, albeit with acknowledged challenges.
Market Competition and Moving Parts
DraftKings is also strategically aligning its poker operations across Michigan, Pennsylvania, and New Jersey, hoping to capture a larger share of the regional market. Still, the consolidation effort underscores their ambition to bolster their competitive position, even as they navigate increased prediction market activity — a move that’s expected to bear fruit long-term but may temper immediate returns. The outlook remains subject to various factors like consumer trends and regulatory changes, particularly as DraftKings ventures further into prediction markets. While the bank’s forecasts show potential for growth, whether the company can manage the associated costs and competition remains uncertain. Industry watchers are keenly observing these developments. But with DraftKings’ next financial update expected in the coming weeks, the sector will be watching closely to see if these projections hold water.
David Harrison stands tall in gambling journalism, marrying his firsthand casino experiences with a deep understanding of betting psychology. His articles transform complex gambling jargon into engaging tales of strategy and chance, making the world of betting accessible and enjoyable. David’s knack for narrative extends beyond print, making him a sought-after speaker on gambling trends and future bets. In the realm of gambling, David is both a scholar and a storyteller, captivating readers and listeners alike.
